FM builds case for merger of banks

Pune, Nov. 24: Finance minister P. Chidambaram today said mergers were inevitable in banking with domestic lenders growing in size and seeking new business models.

“I know there is pride and identity, but ultimately some consolidation would have to take place in the banking system in this country,” Chidambaram said at the annual banking summit Bancon 2012 here today.

Asking banks not to fear consolidation, the finance minister said there was a need to create at least a couple of world-sized banks if India wanted to be among the three largest economies globally.

There have been only a few instances of bank mergers so far — the State Bank of India had merged two of its associate banks with itself. Soon after Chidambaram’s comments, SBI chairman Pratip Chaudhuri said the country’s largest lender was open to further amalgamation of its subsidiaries with itself.

The finance minister called upon senior bankers to develop business models different from each other.

“There is an unintended tendency to stress on uniformity. I don’t think one bank should be a clone of another bank. It will be a tragedy if we get 19 clones in this country. The goals may be common but the method to achieve that must be different,” he said.

Subsidy transfer

The government will launch an ambitious programme under which pensions, scholarships and subsidies will be directly transferred to the bank accounts of beneficiaries from January 1, the finance minister said. The scheme, based on the aadhaar-enabled mechanism, will cover 51 districts in 15 states. The Centre aims to complete the rollout in all 600 districts by the end of the next calendar year.

Spectrum auction

Chidambaram also expressed optimism that the government would be able to raise the targeted Rs 40,000 crore from the auction of 2G spectrum.

The recent auction of 2G spectrum met with a tepid response, raising less than Rs 10,000 crore and prompting critics to put the blame on the high base price.

“The auction is not a one-stage process. There will be a second and maybe a third auction. It is only when the process is completed that we will know whether we have reached a target or not. We are confident of achieving the target of Rs 40,000 crore,” Chidambaram said on the sidelines of Bancon 2012.

The finance minister is also hopeful that crucial economic bills awaiting Parliament’s approval will be cleared once the differences over FDI in retail are resolved.

“I had a meeting with Sushma Swaraj and Arun Jaitley yesterday. At the moment, they are stuck on one issue — they want a debate on FDI in retail that ends with a vote. That issue has yet to be resolved and once it is resolved, the chances of the bills proposed by the ministry of finance being passed are very bright,” he said.

Chidambaram reiterated his earlier position that the Reserve Bank of India must start issuing new bank licences even as amendments in the banking regulation act await Parliament’s approval.

“The powers that the RBI wants are already there with it. It is in their power to grant banking licences. What the banking act does is that it formalises the powers and brings them together,” he said.